The Ultimate Credit Card Terminal Guide- Definition, Pricing & More!

Lauren Christiansen9/24/2021

What is credit card terminal ?

What is a credit card terminal? A credit card terminal is a device that swipes and stores the credit card data from the magnetic stripe on the back of the card. It's typically used to process transactions in restaurants and retail stores. The device has a card reader and a keypad that the cashier uses to enter your card information and your PIN.

What is a Credit Card Terminal?

You've probably heard the term credit card terminal before, but do you know what it is? A credit card terminal is a device that is used to swipe credit cards and debit cards. The device is then plugged into a fixed-point device, such as a cash register or a computer, for processing the transaction.

The most common ones are a credit card reader and a debit card reader. A credit card terminal can be used to process credit card or debit card transactions from a restaurant or brick and mortar store. Using the right credit card terminal is critical to maintain a successful business and optimize cash handling practices.

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What to Know about Payment Processors

Payment processors are the backbone of modern businesses. Some are big players with big names, like PayPal and Stripe. Others are smaller and newer processing companies with more innovative approaches.
Regardless of the type of payment processing provider, these solutions are critical to the way you do business. They provide the gateway to the credit card network, which means all your customers can pay with their credit cards. They maintain and integrate thousands of transactions and handle a plethora of essential data.

A payment processor sends a request to a customer's bank upon a payment. The bank responds within seconds to infer whether the transaction is approved or declined. This provides a quick and simple way for restaurants to perform transactions and ensure customer satisfaction.

If you don't use an effective payment processor, there will be breakdowns and errors. Customers may be forced to pay in cash for certain chunks of the day until it is fixed. This not only frustrates customers but can lead to a lot of profit loss if customers don't have cash on hand. This is why it's so essential to purchase the right type of device that integrates with a POS system. It will help streamline the remaining business processes.

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How Payment Processors Determine Rates

The rates for different types of transactions can vary depending on the type of card, the type of business, and the type of transaction. You'll be charged for any payment processing service based on the size and scope of the restaurant, the card reader system, and whether it is a debit or credit card. Different credit card companies also charge different rates for different types of cards. Plus, there are different rates for different types of transactions.

Most companies use a tiered model to determine rates. Each transaction is grouped into a tier level, and that particular tier level has a set fee rate. Typically, the lower the transaction amount the higher the rate. This is why some quick restaurants and retailers refuse to take credit or debit cards unless the customer pays a fee. There is no point in processing a transaction for very little money when the transaction is at a high-tier payment level. Generally speaking, credit card processing fees are roughly 1.7% to 3.5% per transaction.

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What is Involved in a Credit Card Transaction?

A transaction is simply an exchange of goods or services for payment. A credit card transaction is an exchange of goods or services for credit. A credit card transaction is initiated with the swipe or insertion of the card into the card slot of the terminal. The cardholder then enters a PIN code or signs a receipt to complete the transaction. The processor immediately sends the data to the customer's bank, which then uses AI to approve or disapprove the transaction.

Remember that the terminal always prompts the cardholder for the total cost of the transaction, the amount of cash back, or the amount of the tip. This entire process transpires within a few seconds, especially if you use a high-quality terminal.

Important Variables to Watch For

There are several variables to look out for when determining which credit card terminal to purchase. Always research and compare processing fees and hardware fees. Companies may either offer tiered pricing, blended pricing, interchange-plus pricing, or membership-based pricing. Blended pricing is where all transactions have the same rates. Interchange-plus pricing is where rates are broken into separate components, such as Master card rates vs. Visa rates.

A membership-based pricing model enables the owner to pay a monthly fee depending on the interchange rate. Cards that are swiped or chipped typically incur lower fees because there is less potential for fraud. If the card is punched into the system, the fee may be higher.
There are also traditional terminals, mobile/wireless terminals, integrated POS terminals, or virtual terminals. Virtual terminals have no hardware costs, while integrated POS systems will have higher fees. However, an integrated POS system will be much more effective in the long run, as it integrates with other data and facilitates in-depth data analysis.

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What are Pricing Models?

Credit card processing terminals come with 3 types of pricing models. The restaurant business will need to find a provider whose model aligns with the type of customer transactions. This will help to save money and avoid unnecessary fees. The primary pricing models within a pos terminal should include-

  • Interchange Plus Pricing- This is a fee that the restaurant must pay with each transaction. In turn, the financial companies accept any risks associated with the transaction. Merchants are also required to pay a markup fee, which is a percentage of the transaction in addition to a flat fee. A benefit of interchange plus pricing is that it is highly transparent.

  • Flat-Rate Pricing- This pricing model uses a fixed percentage for each transaction, regardless of cost. There is sometimes also a flat fee on top of this flat rate. This method is simple and easy, but it is easy to overpay. This is particularly true if the restaurant has low ticket items under $10.

  • Tiered Pricing- For this pricing model, the provider categorizes transactions into 3 different rates. Categories depending on how the card is processed (swiped or keyed-in), cost of a transaction, or online payments. While this method is simple, tier systems vary and fluctuate which makes overpayments likely.

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Best Practice Tips for Choosing a Processor

Processor choice is a personal one. There are a lot of factors to consider, and the processor that is the best for one person may not be the best for another. Here are some best practice tips to help you choose the best processor for your needs.

  • Review Fees and Other Expenses- Consider the interchange fees, monthly statement fees, application and set up fees, monthly minimum fees, and monthly gateway access fees. Look for a provider that doesn't charge an early termination fee.

  • Ask About Set Up Time- How long will the processor take to set up? Is it complicated? Ensure there is adequate customer support on hand to help during the process.

  • Check Accepted Payment Types- You want customers to be able to pay however they can. Ensure the provider can process all types of major credit and debit cards to help increase sales.

  • Check New Payment Technologies- Does the provider accept Apple Pay, Samsung Pay, and Android Pay? These forms of payment are growing in popularity. It's good to accommodate as many customers as possible.

  • Check Reviews Online- Check reviews online to see how effective and helpful the customer support team is. See how others react to different processors, or whether they experienced any bottlenecks. It's always a good idea to check the Better Business Bureau too to ensure the provider is accredited and in good standing.

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